UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

Transcription

1 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 WAHID TADROS, individually and on behalf of all others similarly situated, Plaintiff, v. CELLADON CORPORATION, KRISZTINA M. ZSEBO, and REBECQUE J. LABA, Defendants. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA Case No.: cv AJB (DHB) ORDER GRANTING DEFENDANTS MOTION TO DISMISS Presently before the Court is Defendants Celladon Corporation, Krisztina Zsebo, and Rebecque Laba s (referred to collectively as Defendants ) motion to dismiss lead Plaintiff Wahid Tadros s ( Plaintiff ) consolidated amended class action complaint. (Doc. No..) Concurrently with the motion to dismiss, Defendants filed a request for judicial notice. (Doc. No..) Plaintiff opposes the motion to dismiss and the request for judicial notice. (Doc. Nos.,.) For the following reasons, Defendants motion to dismiss and request for judicial notice is GRANTED with leave to amend. This motion is suitable for determination on the papers and without oral argument in accordance with Civil Local Rule..d.. (Doc. No..) cv AJB (DHB)

2 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 I. RELEVANT BACKGROUND The instant action is a securities class action brought by Court appointed lead Plaintiff individually, and on behalf of similarly situated persons and entities. The Class Period at issue is from January 0, 0 through June, 0. (Doc. No..) Plaintiff alleges that Defendants misled Celladon investors by creating materially false impressions as to the success of the CUPID clinical trial of Mydicar and the likelihood that the CUPID clinical trial would succeed. A. Parties to the Litigation Plaintiff brings the instant action on behalf of himself and all others similarly situated that purchased or otherwise acquired the publicly traded common stock or call options of Celladon, or sold Celladon options, and that were damaged. (Id.) Defendant Celladon Corporation ( Celladon ) was founded in December 000 as a clinical-stage biotechnology company with industry-leading expertise in the development of cardiovascular gene therapy. (Id..) Defendant Krisztina Zsebo ( Zsebo ) was the chief executive officer of Celladon and a member of its Board of Directors from 00 through June, 0. (Id. 0.) Zsebo also served as President of Celladon from 00 through June 0. (Id.) Zsebo has a Ph.D. in comparative biochemistry and is described as having 0 years of experience in the pharmaceutical industry as well as experience with drug development. (Id..) (internal quotation marks omitted). Defendant Rebecque Laba ( Laba ) was Celladon s vice president for finance and administration from 00 through the end of the class period. (Id..) In this capacity, Laba served as a consultant on finance and administration matters for the company from 00 through 00. (Id.) /// The following allegations are taken from the Plaintiff s consolidated amended complaint and are construed as true for the limited purpose of ruling on this motion. Brown v. Elec. Arts, Inc., F.d, (th Cir. 0). cv AJB (DHB)

3 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 B. General Background: Heart Failure and Gene Therapy Heart failure is a chronic and devastating medical condition where the heart is unable to pump blood throughout the body properly. (Doc. No..) As a biotech company, Celladon worked on developing gene-based therapies for cardiovascular diseases. Celladon s primary product candidate, called Mydicar, was intended to be a one-time gene therapy treatment to replace portions of genetic material that regulates production of SERCAa (sarco/endoplasmic reticulum CA+- ATPase), an enzyme that becomes deficient in patients with heart failure. (Id.,.) For a gene therapy to work, the corrective genetic material needs a delivery mechanism or vector to carry it to the patient s cells (Id..) Mydicar used a viral vector (specifically, adeno-associated virus, or AAV ) to deliver its gene therapy into targeted cells, encapsulating the corrective genetic material in a shell made of harmless viral protein that heart cells are known to absorb. (Id.) C. Overview of FDA Regulations and Clinical Trials There are three phases of clinical trials. (Id..) A Phase I clinical trial will generally test the product candidate on a small sample of patients to determine if there are any safety issues, ascertain dose tolerance, and any possible adverse side effects of the treatment. (Id.) A Phase II clinical trial investigates safety and efficacy on a slightly larger scale, generally comparing patients receiving treatment with patients receiving a placebo. (Id..) Phase III clinical trials generally involve a larger test population with broader geographic scope in an effort to further ascertain the drug s efficacy and determine whether the drug yields statistically significant results compared to a placebo or standard of care. (Id.) Each Phase of a clinical trial is tested against clinical endpoints which are prespecified scientific hypotheses that would establish success. (Id..) Meeting the clinical endpoints is critical to showing a positive outcome from treatment and ultimately in obtaining FDA approval. (Id.) /// cv AJB (DHB)

4 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 D. Factual Allegations Underlying the Class Action Complaint ( CAC ). CUPID, Stage In December 00, Celladon filed an investigational new drug ( IND ) application in support of clinical development of Mydicar. (Doc. No. 0.) An IND permits a company developing medical treatments to undergo clinical trials to obtain regulatory approval from the FDA. (Id..) In an article that was co-authored by Zsebo and published by the Journal of Cardiac Failure in June of 00, the underlying study was called CUPID (Calcium Upregulation by Percutaneous Administration of Gene Therapy in Cardiac Disease) (Id. at.) CUPID was comprised of Stage (safety) and Stage (preliminary indication of clinical treatment effect), corresponding to the Phase I and Phase II testing described above. (Id..) In Stage, researchers tested the safety of Mydicar at various dosing levels by administering four sequentially escalating doses of the product to patients. (Id.) The test subjects were monitored for any clinically meaningful immune response to AAVI protein. (Id.) The primary endpoint for Stage -safety-was measured by the quantity and severity of adverse events, which include death from any cause of progression of heart failure leading to hospitalization. (Id..) On November, 00, Celladon issued a press release announcing the initial safety findings for the first nine patients that received Mydicar in Stage of CUPID. (Id..) Data from the final three patients in Stage testing, which included those patients recovering from the highest dose of Mydicar were not included in the analyses that formed the basis for this announcement. (Id..) The press release stated that the study had show[n] the product was safe and demonstrate[d] improvement across a number of key parameters. (Id..) The release also quoted Zsebo as stating that the data demonstrate[d] the safety of Mydicar, and the improvements in cardiac function and overall condition observed in some patients further validate our target and approach. (Id.) cv AJB (DHB)

5 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0. CUPID, Stage Stage of CUPID was a Phase II efficacy trial that compared the use of Mydicar at dose levels with placebo. (Doc. No..) Celladon announced that enrollment in Stage was complete on August, 00. (Id.) The trial design included subjects that would be randomized to of doses of Mydicar. (Id.) Of those subjects, subjects would be randomized to placebo. (Id.) Stage used a set of clinical endpoints designed to measure efficacy. (Id..) The study would be deemed demonstrative of clinical effect if at the group level, the group mean improved in certain domains. (See Doc. No..) On April, 00, Celladon issued a press release announcing that the primary endpoint for stage of CUPID had been met. (Doc. No..) On November, 00, Celladon issued another press release announcing the CUPID, Stage long-term results, presenting the full months of trial data. (Id..) Celladon stated that Stage, which studied patients, met primary safety and efficacy endpoints after months of high-dose Mydicar compared with placebo. (Id.). Fast Track Status and Breakthrough Therapy Designation On December, 0, Celladon announced that the FDA s Center for Biologics Evaluation and Research ( CBER ) had granted Mydicar Fast Track status based upon the results of CUPID. (Id..) Fast Track status allows drugs that treat a serious disease and fill an unmet medical need to have an accelerated review. (Id.) When applying for Fast Track status, the FDA s May 0 Guidance for Industry: Expedited Programs for Serious Conditions- Drugs and Biologics ( FDA Guidance ) states that a submission for Fast Track designation is to contain basic information that in most cases could be captured in approximately 0 to 0 pages. (Id..) In a press release dated March, 0, Celladon stated that it had received a Special Protocol Assessment ( SPA ) in May 0. (Id. 0.) Using the SPA, the FDA had agreed that time-to-recurrent events in the presence of terminal events was an acceptable primary endpoint for any future Phase trials. (Id.) cv AJB (DHB)

6 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 On April 0, 0, Celladon issued a press release that announced the CBER had granted Breakthrough Therapy designation to Mydicar based on the results of CUPID. (Doc. No..) Like Fast Track Status, Breakthrough Therapy designation is a process designed to expedite the development and review of drugs that are intended to treat a serious condition and demonstrate substantial improvement over available therapies. (Id.). CUPID Due to the completion of CUPID, Celladon advanced to Phase IIb testing of Mydicar, which it called CUPID. Celladon described CUPID as a phase b, doubleblind, placebo controlled, multinational, multicenter, randomized event-driven study in up to 0 patients with moderate-to-severe heart failure (Id..) CUPID used only the high dose of Mydicar as used in CUPID, and specifically sought out patients with a high risk for recurrent cardiovascular events requiring hospitalizations. (Id..) Unlike CUPID, CUPID had two defined investigatory endpoints. CUPID s primary efficacy endpoint [was] time-to-recurrent events in the presence of terminal events at the primary analysis data cutoff. (Id..) CUPID s secondary efficacy endpoint was time-to-first terminal event. (Id..) These endpoints differed significantly from any of the predefined efficacy endpoints identified in CUPID. (Id..) In order to meet the study s primary endpoint, CUPID needed to show at least a % reduction in the risk of recurrent events. (Id. 00.) The clinical investigators made clear that the CUPID study design was based on the results of the earlier CUPID phase study. (Id.). CUPID Fails to Meet its Specified End Points On April, 0, Celladon issued a press release titled Celladon Reports Negative Results for CUPID Trial of Mydicar in Advanced Heart Failure- Investigational gene therapy fails to meet primary and secondary endpoints. (Id..) As a result of the news, the price of Celladon stock plummeted 0%. (Id. 0.) On June, 0, Celladon issued a press release that announced that it would begin seeking an acquisition or partnership. (Id..) The press release also stated that Defendant Zsebo had resigned her positions cv AJB (DHB)

7 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 as CEO and a member of the Board of Directors. (Id.) In total, Celladon common stock lost % of its value. (Doc. No..) Plaintiff s main contention is that CUPID had fundamental shortcomings. For example, the patients in the high-dose treatment group, by nearly every measure and to a statistically significant degree, were objectively healthier at baseline than the patients in the placebo group. (Id..) Thus, the fact that patients receiving high-dose Mydicar were healthier at the outset influenced the results showing Mydicar to be effective compared to placebo. (Id.) In addition, Plaintiff argues that the post-hoc sensitivity analyses conducted by Defendants to reassure the public of Mydicar s effectiveness, was arbitrary and biased. (Id.) Moreover, Plaintiff believes that CUPID s unconventional domains and endpoints would allow Mydicar to yield false positives. (Id..) As a result, Plaintiff argues that Defendants knew or should have known that CUPID was so flawed in design and execution that it could not be used as a basis to find that Mydicar had a positive effect on heart disease patients or to proceed to phase IIb. (Id..) II. PROCEDURAL BACKGROUND Plaintiff filed a complaint against the Defendants on July, 0. (Doc. No..) On July, 0, Defendants attorneys filed a Notice of Related Cases with this Court. (Doc. No..) On August, 0, both parties filed a Joint Motion for Extension of Time to file a response to the Complaint. (Doc. No..) On August, 0, the Court granted the Joint Motion to Extend Defendants time to respond. (Doc. No..) On August, 0, Plaintiff filed a motion to be appointed Lead Plaintiff. (Doc. No..) On December, 0, both parties agreed to appoint Plaintiff as the Lead Plaintiff and to consolidate the cases. (Doc. No..) On April, 0, Defendants filed a motion to Dismiss Plaintiff s CAC. (Doc. No..) On the same date, Defendants filed a request for judicial notice. (Doc. No..) On June, 0, Plaintiff responded to Defendants motion to dismiss. (Doc. No..) Plaintiff filed an objection to Defendants request for judicial notice on June, 0. (Doc. No..) On July, 0, this Court granted the parties joint motion to continue the hearing on Defendants Motion to Dismiss from August, 0 to cv AJB (DHB)

8 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 September, 0. (Doc. No. 0.) This case was fully briefed by both parties on July, 0. (Doc. No..) III. THE ALLEGED MISLEADING STATEMENTS The alleged misrepresentations and omissions are set forth in detail in the Defendants Materially False and Misleading Statements and Omissions of Material Fact section of the CAC. The crux of Plaintiff s argument revolves around the contention that Defendants knew or were reckless in not knowing that CUPID was fundamentally flawed in design and execution and that it could not be used as the basis to find that Mydicar had demonstrated any positive effects on the test subjects or to proceed to Phase IIb of the clinical trials. (Doc. No..) The following statements are the alleged misleading statements cited by Plaintiff in the CAC. A. IPO Registration On October, 0, Celladon filed an initial public version of a Form S- Registration Statement and Prospectus with the SEC, and later filed several amendments to the Form S-. (Id. 0.) The Registration Statement was signed by Defendants Zsebo and Laba, and stated: In Phase a of our Cupid trial, patients with systolic heart failure,... were enrolled in a randomized, double-blind, placebo controlled trial, where Mydicar was found to be safe and welltolerated, reduced heart failure-related hospitalizations, improved patients symptoms, quality of life and serum biomarkers, and improved key markers of cardiac function predictive of survival, such as end systolic volume. Based on these results, as well as our previous preclinical studies and clinical trials, we advanced Mydicar to an approximately 0- patient randomized, double-blind, placebo-controlled international Phase b trial in patients with systolic heart failure, which we refer to as CUPID. (Id..) The Registration Statement further stated: [T]he relative risk reductions or hazard ratios, at months for the high-dose Mydicar group versus placebo for recurrent cv AJB (DHB)

9 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 (Doc. No..) adjudicated clinical events was 0., p=0.00 (where the p-value is the statistical probability of a result due to chance alone), representing a risk reduction of % for these important events with the high-dose Mydicar. At months, the high-dose Mydicar group versus placebo for recurrent adjudicated clinical events was 0., p=0.0, representing a risk reduction of % for these important events with high dose Mydicar. B. 0 Form 0-K & March, 0 Conference Call On March, 0, Celladon filed its Form 0-K Annual Report with the SEC for the year ending December, 0 (0 Form-K ). (Id. 0.) The 0 Form-K was signed by Defendant Zsebo and Laba, and stated: (Id.) In Phase a of our CUPID trial, patients with heart failure, were enrolled in a randomized, double-blind, placebo controlled trial, Mydicar was safe and well-tolerated, reduced heart failure-related hospitalizations, improved patients symptoms, quality of life and serum biomarkers, and improved key markers of cardiac function predictive of survival, such as end systolic volume. Based on these results, as well as our previous previous preclinical studies and clinical trials, we advanced Mydicar to a 0-patient randomized, double-blind, placebocontrolled international Phase b trial in patients with [heart failure] which we refer to as CUPID. Also on March, 0, Defendants held a conference call with analysts to discuss Celladon s 0 financial results. (Doc. No..) During the call, Defendant Zsebo stated: In our previous clinical studies of MYDICAR, we had demonstrated initial safety and evidence of improvement in a number of parameters important in heart failure therapeutic assessments as well as improved clinical outcome. Specifically, our Phase a trial, which we referred to as CUPID, demonstrated that high dose MYDICAR provided substantial improvement when added to an optimized heart failure regimen. cv AJB (DHB)

10 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page 0 of 0 0 MYDICAR high dose subjects had a decreased frequency of cardiovascular events, primary hospitalizations at months versus placebo subject on optimized background therapy. Statistically measuring this treatment effect, we observed a hazard ratio of 0. or an % risk reduction of these cardiovascular events with a p-value of (Doc. No..) Defendant Zsebo also stated during the conference call that Celladon had advanced Mydicar to a Phase IIb trial based on these very encouraging results. (Id..) Additionally, in response to a question from an analyst, Defendant Zsebo responded, in CUPID, all Mydicar dose groups demonstrated a reduced hospitalization rate as well as reduced mortality. (Id.) C. April 0, 0, Breakthrough Therapy Announcement On April 0, 0, Celladon issued a press release announcing that it had received a Breakthrough Therapy Designation from the FDA. (Id..) The press release described Mydicar as novel and first-in-class with Defendant Zsebo also stating that the designation validate[d] Mydicar s unique characteristics and clinical data to date (Id.) D. May, 0, Conference Call On May, 0, Defendants held a conference call with analysts to discuss Celladon s results for the first quarter of 0. (Id. 0.) During the call, Defendant Zsebo reiterated the position that the FDA s Breakthrough Therapy designation validated Mydicar s unique characteristics and was a testament to the strength of the clinical data to date, wherein the CUPID trial Mydicar high dose subjects had an % reduction of cardiovascular events with a p-value of (Id..) E. Jefferies 0 Global Healthcare Conference From June through June, 0, Jefferies LLC held its 0 Global Healthcare Conference in New York City, a meeting that was attended by a broad range of public and private healthcare companies and potential investors. (Id..) Defendant Zsebo 0 cv AJB (DHB)

11 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 presented at the conference on June, 0. (Doc. No..) Plaintiff asserts that Defendant Zsebo s presentation falsely highlighted Mydicar s Promising Phase a Results as demonstrating an % reduction in hospitalizations. (Id..) Defendant Zsebo s presentation included a PowerPoint presentation, excerpts of which are included in the CAC. (Doc. No. at.) The slides cited by Plaintiff stated, Mydicar reduced adjudicated heart failure clinical events through months for patients receiving high doses. (Id. at.) IV. LEGAL STANDARD A motion to dismiss under Rule (b)() tests the legal sufficiency of a plaintiff s complaint. See Navarro v. Block, 0 F.d, (th Cir. 00). A court may dismiss a complaint as a matter of law for () lack of cognizable legal theory or () insufficient facts under a cognizable legal claim. SmileCare Dental Grp. v. Delta Dental Plan of Cal., F.d 0, (th Cir. ) (internal citation omitted). However, a complaint will survive a motion to dismiss if it contains enough facts to state a claim to relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 0 U.S., 0 (00). In making this determination, a court reviews the contents of the complaint, accepting all factual allegations as true, and drawing all reasonable inferences in favor of the nonmoving party. Cedars-Sinai Med. Ctr. v. Nat l League of Postmasters of U.S., F.d, (th Cir. 00). Notwithstanding this deference, the reviewing court need not accept legal conclusions as true. Ashcroft v. Iqbal, U.S., (00). It is also improper for a court to assume the [plaintiff] can prove facts that [he or she] has not alleged. Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, U.S., All pincite page references refer to the automatically generated CMECF page number, not the page number in the original documents. The Court notes that Plaintiff also lists statements from an August, 0 press release, Celladon s secondary stock offering, presentations from the Best of Circulation Research Symposium, and Celladon s 0 Form 0-K. The Court finds these statements to mimic the ones listed above and thus finds it unnecessary to repeat each statement again. cv AJB (DHB)

12 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 (). However, [w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief. Iqbal, U.S. at. V. REQUEST FOR JUDICIAL NOTICE Although generally the scope of review on a motion to dismiss for failure to state a claim is limited to the complaint, a court may consider evidence on which the complaint necessarily relies if: () the complaint refers to the document; () the document is central to the plaintiff [ s] claim; and () no party questions the authenticity of the copy attached to the (b)() motion. Daniels Hall v. Nat l Educ. Ass n, F.d, (th Cir. 00) (internal quotation marks and citations omitted). Federal Rule of Evidence 0(b) permits judicial notice of a fact when it s not subject to reasonable dispute because it: () is generally known within the trial court s territorial jurisdiction; or () can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned. Welk v. Beam Suntory Imp. Co., F. Supp. d 0, 0 (S.D. Cal. 0). Defendants request judicial notice of several exhibits filed in support of their motion to dismiss. (See Doc. No..) Defendants contend all of the documents are appropriate subjects for consideration under Rule 0 or the doctrine of incorporation by reference. (Id.) Plaintiff filed an objection to Defendants request for judicial notice, urging the Court not to consider Exhibits,, and. (Doc. No..) As Plaintiff does not oppose Exhibits -, -, and, Defendants request for judicial notice is GRANTED as to these exhibits. The Court will now turn to Plaintiff s objections. Plaintiff objects to the Court taking judicial notice of Exhibit, The Motley Fool Article published on October, 0, titled Why Shares in Celladon Corp. Burst Today (Doc. No. at ) and the March, 0, The Street article, entitled Celladon Heart- Failure Study Looms Large as Next Big Test for Gene Therapy. (Id. at.) Plaintiff argues that Defendants do not incorporate the article by reference or otherwise rely upon it in the CAC, and therefore the Court may not consider it in ruling on Defendants motion to dismiss. (Id.) cv AJB (DHB)

13 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 Defendants request the Court take judicial notice of all Exhibits,, on the grounds that the information was publicly available to reasonable investors at the time the defendant made statements plaintiffs alleged were fraudulent. (Doc. No. at ) (quoting In re First Union Corp. Sec. Litig., F. Supp. d, (W.D.N.C. 00). Courts may take judicial notice of publications introduced to indicate what was in the public realm at the time, not whether the contents of those articles were in fact true. Von Saher v. Norton Simon Museum of Art at Pasadena, F.d, 0 (th Cir. 00) citing Premier Growth Fund v. Alliance Capital Mgmt., F.d, 0 n. (d Cir. 00). See also Brodsky v. Yahoo! Inc., 0 F. Supp. d 0, (N.D. Cal. 00) ( The Court also grants Defendants request [for judicial notice] as to Exhibits through, Yahoo! Press releases, news articles, analyst reports, and third party press releases to which the SAC refers, but not for the truth of their contents ) (emphasis added)). Accordingly the Court GRANTS Defendants request for judicial notice as to these two exhibits to demonstrate what was in the public realm at that time but not to indicate that the contents of the articles are true. Lastly, Plaintiff objects to the Court s consideration of Exhibit, a chart prepared by defense counsel as it is cumulative of and mischaracterizes the allegations of the complaint. (Doc. No. at.) In response, Defendants argue that the statements presented in the chart are quoted directly from the CAC and are not altered. (Doc. No. at.) Courts can take judicial notice of charts that compile information. See Garden City Empl. Ret. Syst. v. Anixter Int l. Inc., 0 WL 0, at * (N.D. Ill. Mar.. 0) (Deciding that though a District of Columbia ruling was not controlling, the court agreed that the chart at issue did not present any information or argument that is not contained in [defendant s filing]; it is simply the same argument from the reply presented in a different manner )). The Court finds the same situation present here. Defendants chart compiles the allegedly misleading statements together with a reference to where it appears in Plaintiff s and Defendants motions. The statements are unaltered but are simply presented in an cv AJB (DHB)

14 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 organized, easy to use format. Thus, Defendants request for judicial notice of this exhibit is GRANTED. VI. DISCUSSION A. Section 0(b) of Securities and Exchange Act and the PSLRA Plaintiff asserts claims under 0(b) of the Securities Exchange Act of and Rule 0b against Celladon (Count I), and individual Defendants Zsebo and Laba (Count II). Section 0(b) forbids () the use or employment of any deceptive device, () in connection with the purchase or sale of any security, and () in contravention of Securities and Exchange Commission ( SEC ) rules and regulations. U.S.C. j(b); see Dura Pharmaceuticals, Inc. v. Broudo, U.S., (00). Rule 0b, promulgated by the SEC under 0(b), forbids the making of any untrue statement of a material fact or the omission of any material fact necessary in order to make the statements made not misleading. C.F.R. 0.0b ; see Dura Pharmaceuticals, Inc., U.S. at. To succeed in a private civil action under 0(b) and Rule 0b, a plaintiff must establish () a material misrepresentation (or omission); () scienter, i.e., a wrongful state of mind; () a connection with the purchase or sale of a security; () reliance...; () economic loss; and () loss causation, i.e., a causal connection between the material misrepresentation and the loss. Dura Pharmaceuticals, U.S. at. In support of dismissal, Defendants argue that Plaintiff has not adequately pled each element of 0(b) and Rule 0(b)-. For the reasons mentioned below, the Court GRANTS Defendants motion to dismiss. /// /// The Court notes that Plaintiff objects to Defendants use of three argumentative titles for the chart at issue. (Doc. No. at.) The Court clarifies that it is only taking judicial notice of the chart and its organization of the allegedly misleading statements and not of the three topic headers used by Defendants. cv AJB (DHB)

15 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0. Materially False and Misleading Before the passage of the Private Securities Litigation Reform Act of ( PSLRA ), the pleading requirements in private securities fraud litigation were governed by Fed. R. Civ. P. (b), which required only that falsity be pled with particularity; scienter could be averred generally. Lipton v. Pathogenesis Corp., F.d 0, 0 n. (th Cir. 00). The PSLRA, however, imposed a heightened pleading standard in securities litigation and required that a complaint plead with particularity both falsity and scienter. Id. To meet the heightened pleading requirement, the complaint must contain allegations of specific contemporaneous statements or conditions that demonstrate the intentional or deliberately reckless false or misleading nature of the statements when made. In re Read- Rite Corp. Sec. Litig. v. Read-Rite Corp., F.d, (th Cir. 00). Falsity is any untrue statement of a material fact. U.S.C. u (b)(). It also occurs when a defendant omitted to state a material fact necessary in order to make the statements made, in light of the circumstances in which they were made, not misleading. Id. Often a statement will not mislead even if it is incomplete or does not include all relevant facts. Brody v. Transitional Hosps. Corp., 0 F.d, 00 (th Cir. 00). Instead a statement is misleading if it would give a reasonable investor the impression of a state of affairs that differs in a material way from the one that actually exists. Berson v. Applied Signal Tech., Inc., F.d, (th Cir. 00) (internal citation and quotation marks omitted)). To plead falsity with particularity, a complaint must specify each statement alleged to have been misleading [and] the reason or reasons why the statement is misleading. In re Vantive, F.d 0, 0 (th Cir. 00); U.S.C. u (b)(). If allegations are made on information and belief, a plaintiff must provide, in great detail, all the relevant facts forming the basis for her belief. In re Silicon Graphics Inc. Sec. Litig, F.d 0, (th Cir. ); see also U.S.C. u (b)() ( [I]f an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed ). If the challenged statement is not cv AJB (DHB)

16 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 false or misleading, it does not become actionable merely because it is incomplete. In re Vantive, F.d at 0. Here, Plaintiff provides this Court with a great deal of facts but fails to sufficiently plead with particularity how each statement is allegedly misleading. Instead, after each allegedly misleading statement, Plaintiff directs the Court to look at parts IV F-H in the CAC to explain why Defendants knew or were reckless in not knowing that CUPID was allegedly flawed. (Doc. No..) Plaintiff then repeatedly states the same conclusory argument; that Defendants knew or were reckless in not knowing that CUPID was fundamentally flawed in design and execution that it could not be used as the basis to either find that Mydicar had, in fact demonstrated those effects [reduction in heart disease], or, therefore, to proceed to Phase IIb. (Id.,,,,, 0, ). One of Plaintiff s main arguments is that Defendants are liable as participants in a fraudulent scheme that operated as a fraud or deceit on purchasers of Celladon securities by disseminating materially false and misleading statements and concealing adverse facts. (Id..) However, this statement whether made on information or belief or sufficient facts, fails to provide specific information to successfully argue that Defendants allegedly schemed to create faulty tests that would help Mydicar pass FDA clinical trials, knew the clinical data was flawed, or that Defendants ignored the allegedly defective test results. Plaintiff s only supporting evidence is that the placebo group in CUPID was supposedly less healthy than the high-dose Mydicar groups at the onset of the clinical trial. Plaintiff also tries to bolster his argument by stating that the post-hoc sensitivity analyses done by Defendants to ensure the public of Mydicar s effectiveness was also flawed. (Id..) Under the heightened standard of the PSLRA, the broad arguments presented by Plaintiff do not provide sufficient facts or information to successfully plead that Defendants Zseba and Laba intentionally manipulated the CUPID clinical trial, recklessly ignored clinical data or schemed to alter the sensitivity analyses all to defraud investors and drive up stock prices. See Ronconi v. Larkin, F.d, -0 (th Cir. 00) ( holding that complaint did not sufficiently plead falsity where it alleged that defendant made false cv AJB (DHB)

17 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 statements about earnings and sales expectations and that defendant stated that plan to cut jobs and costs was on track, but complaint did not allege facts showing that defendant knew at the time that predictions were inaccurate )). In In re Immune Response Sec. Litig., F. Supp. d, 0-0 (S.D. Cal. 00), plaintiffs argue that defendants in that case committed fraud by publicly reporting results that they knew or should have known were either so incomplete or so statistically flawed as to lack clinical significance. Similarly, in the present matter, Plaintiff is alleging that Defendants knew or should have known that the clinical trials showing Mydicar as effective were flawed and could not provide a sound basis to proceed to CUPID. However, in direct contrast, plaintiffs in In re Immune Response Sec. Litig., provided that court with corroborating details of the internal reports, cite to specific reports, mention the dates or contents of reports and allege their sources of information about the reports. Id. In addition, plaintiffs in that case also demonstrated contemporaneous facts which suggest the falsity of defendant s statements. Id. See In re Maxim Integrated Products, Inc., F. Supp. d 0, 0- (00) (finding that plaintiffs complaint adequately pleads that defendants made material misrepresentations because defendants representations were later shown to be false when the company announced that it would restate its financials)). Here, we are not presented with any contemporaneous statements or specific facts to show falsity. In fact, Plaintiff s CAC provides more support against Plaintiff s arguments by providing positive evidence of Mydicar s fast track and breakthrough status, Celladon s success in raising over $00 million from venture capital funds and capital markets and press releases from other sources touting Mydicar s optimistic results. (Doc. No. 0- The Court notes that Plaintiff also argues that the absence of effect at the low- and mid-dose levels of Mydicar in heart disease patients also proves that there were flaws in the study design. (Doc. No..) However, Celladon s form 0k filing highlights this issue and as a result Celladon did a study to better determine the results and found that in the low- and mid-dose groups, we [Celladon] believe the dose was not sufficient to insert the SERCAa gene in enough cells. Our hypothesis for why the lowand mid-dose groups demonstrate a delay of the onset of clinical events which is not durable relates to the short term increase in blood flow into the heart after MYDICAR therapy; higher doses are required to insert the gene deep into the cardiac muscles. (Doc. No. -, Ex. A at ). cv AJB (DHB)

18 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 0, -.) Plaintiff reliance on the baseline indifferences between the placebo and high dose Mydicar group to propel his argument is not adequate to satisfy the heightened pleading standard under the PSRLA. As a result, Plaintiff s main contention that Defendants positive statements regarding Mydicar s efficacy in the IPO Registration, SEC filings, conference call transcripts and press releases were all misleading when made fails. Lastly, the Court notes that Plaintiff s catalogue of press releases and conference call transcripts, also contain a number of comments made by Defendant Zsebo regarding Mydicar s success in the clinical trials. The Court finds these statements to be nonactionable. Vague, generalized, and unspecific assertions of corporate optimism or statements of mere puffing cannot state actionable material misstatements of fact under federal securities law. See Glen Holly Entm t. Inc. v. Tektronix. Inc., F.d, (th Cir. 00). The non-actionable statements, or otherwise termed puffery rule, does have an outer boundary. The Ninth Circuit has defined the point at which a projection of optimism becomes an actionable, factual misstatement under section 0(b), namely, when () the statement is not actually believed, () there is no reasonable basis for the belief, or () the speaker is aware of undisclosed facts tending seriously to undermine the statement s accuracy. In re Cornerstone Propane Partners, L.P., F. Supp. d 0, 0) citing Grossman, 0 F.d at. The Court finds that Defendants statements regarding the encouraging results of Mydicar and Mydicar s unique characteristics are all projections of general optimism. (Doc. No. at -.) The March, 0, May, 0, and August, 0 conference calls and Celladon s April 0, 0 press release that state phrases such as encouraging results and unique characteristics are all generalized statements of corporate optimism. Here, Defendants are speaking about Mydicar s success in CUPID and its continual movement with Fast Track and Breakthrough Therapy status. Plaintiff has not provided this Court with any facts to prove that Defendants didn t believe Mydicar s positive clinical data or that they did not believe that Mydicar was not performing as they stated. Accordingly, as the complaint fails to provide information or facts that would undermine cv AJB (DHB)

19 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 Defendants belief in the optimistic projections of Mydicar, Defendants statements do not give rise to liability under the PSLRA. Whether pled on information or belief or through factual allegations, Plaintiff s generalized allegations fail to sufficiently plead a cause of action under the first prong of his 0(b) claim. As a result, Defendants motion to dismiss is GRANTED. However, as this Court will be granting Plaintiff leave to amend its complaint, the Court will continue and analyze Plaintiff s scienter claims to see if they satisfy the heightened pleading standards specified under the PSLRA.. Scienter Scienter is [the] essential element of a 0(b) claim. In re Read Rite Corp., F.d, (th Cir. 00); see also Lipton, F.d 0, 0 n. (th Cir. 00) ( Scienter is an essential element of a 0(b) or Rule 0b claim )). The Supreme Court has explained that scienter for purposes of 0(b) and Rule 0b is the defendant s intention to deceive, manipulate or defraud. Tellabs, Inc. v. Makor Issues & Rights, Ltd., U.S. 0 (00). To satisfy this standard, a plaintiff must show that a defendant acted intentionally or with deliberate recklessness. In re Silicon Graphics, F.d at. The Ninth Circuit has held that recklessness only satisfies scienter under 0(b) to the extent that it reflects some degree of intentional or conscious misconduct. Id. at. Deliberate recklessness is conduct [that] may be defined as a highly unreasonable omission, involving not merely simple, or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and which presents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it. Hollinger v. Titan Capital Corp., F.d, (th Cir. 0). The Court cautions Plaintiff from using the word design or creating an argument around the design of Celladon s clinical testing if it decides to amend its complaint as mere disagreements over statistical methodology and study design are insufficient to allege a materially false statement. In re Rigel Pharm., Inc. Sec. Litig. v. Andre Deleage, F.d, - (th Cir. 0). cv AJB (DHB)

20 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page 0 of 0 0 In assessing whether Plaintiffs have sufficiently pled scienter [the Court] must consider whether the total of plaintiffs allegations, even though individually lacking, are sufficient to create a strong inference that defendants acted with deliberate or conscious recklessness. Nursing Home Pension Local v. Oracle Corp., 0 F.d, 0 (th Cir. 00). In determining whether a strong inference of scienter exists, [the Court] must consider all reasonable inferences, whether or not favorable to the plaintiff. Id.; see Gompper v. VISX, Inc., F.d, (th Cir. 00) (noting the inevitable tension... between the customary latitude granted the plaintiff on a [(b)()] motion to dismiss...and the heightened pleading standard set forth under the PSLRA ). Where pleadings are not sufficiently particularized or where, taken as a whole, they do not raise a strong inference of scienter, a Rule (b)() dismissal is proper. Lipton, F.d at 0; see also No. Empl r Teamster Joint Council Pension Trust Fund v. America West Holding Corp., 0 F.d 0, (th Cir. 00) ( If a plaintiff fails to plead either the alleged misleading statements or scienter with particularity, his or her complaint must be dismissed. ). Parts IV of the CAC fails to establish a strong inference of scienter. Plaintiff does not provide any specific factual allegations that point to Defendants intent to manipulate the clinical trials, or intent to deceive the public. See In re Immune Response Sec. Litig., F. Supp. d at 0 (holding that plaintiffs adequately pled scienter by providing the court with specific factual allegations including the names of persons involved in the alleged fraud, the reports which evidence the alleged fraud, and the actions of Defendants in perpetuating the fraud ). Plaintiff also lists a variety of additional arguments to support its inference of scienter. As scienter must be analyzed based on the totality of allegations provided in the complaint, disposition of the issue will be reserved until this section s conclusion. See Gompper, F.d at. /// /// 0 cv AJB (DHB)

21 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 a. Scienter Alleged by the Nature of the Flawed CUPID Trial and that Mydicar was Celladon s Only Viable Product Candidate Plaintiff s first two arguments allege that Scienter can be alleged by: () the nature of the flawed CUPID trial and that () Mydicar was Celladon s only viable product candidate. (Doc. No. -.) Specifically, Plaintiff argues that Defendants hid the flawed data of CUPID so as to save Defendants the cost and delay of having to re-conduct a Phase IIa clinical trial. (Id..) The Court believes that Plaintiff pleads these facts to argue both motive and opportunity. In Acito v. IMCERA Group, Inc., F.d, - (d Cir. ), the court held that allegations that corporate insiders were motivated to defraud the public to achieve an inflated stock price or to increase executive compensation were insufficient to prevent dismissal under Rule (b) and Rule (b)(). Here, the CAC clearly states that CUPID results were published only a few months prior to the Company s efforts to attract private investors through rounds of venture capital funding and Celladon s public decision to proceed with Phase IIb testing were central to venture capital investors decision to invest providing a strong motive for Defendants misrepresentations. (Doc. No..) As such, these two factors alone do not provide a strong indicia of scienter. b. Scienter Alleged Through Celladon being a Small Company Plaintiff alleges that Defendants Zsebo and Laba worked side-by-side and were hands-on executives, closely familiar with all of the Company s research and development and the Mydicar project in particular. (Id..) In other words, Plaintiff is arguing an inference of scienter through the core operations concept. The core-operations theory is applied in securities cases and permits courts to infer that corporate executives are aware of facts critical to a business s core operations or an important transaction [which] are so apparent that their knowledge may be attributed to the company and its key officers. South Ferry LP, No. v. Killinger, F.d, - (th Cir. 00). However, a plaintiff must allege more than that directors should have known or must have known about matters relating to the corporation s core business. In re Accuracy, Inc. S holder Deriv. Litig., F. Supp. d, (N.D. Cal. 00). In addition, a strong inference of scienter when cv AJB (DHB)

22 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 arguing core operations must be made in conjunction with management s exposure to factual information. See In re Daou Sys., Inc., F.d 00, 0- (th Cir. 00) (plaintiffs relied on specific admissions from top executives that they are involved in every detail of the company and that they monitored portions of the company s database to support a strong inference of scienter ). Plaintiff provides no specific allegations or admissions from Defendants regarding their responsibilities within the corporation. Instead, Plaintiff states that Defendants were deeply involved in all aspects of both clinical trials. (Doc. No..) Without more, these conclusory allegations do not provide a strong indicia of scienter. c. Scienter Alleged from the Termination of Defendant Zsebo Plaintiff claims that the timing of Defendant Zsebo s termination as CEO of Celladon and removal from the Board of Directors creates a strong inference of scienter. (Id..) Defendants argue that Plaintiff does not include any specific allegations that the resignation was due to any accusations of fraud. (Doc. No. - at.) The Court finds that whether Defendant Zsebo was terminated or resigned after Mydicar failed to pass CUPID testing is not evidence of scienter on its own. As was concluded in In re Cornerstone Propane Partners, F. Supp. d at 0, most major stock losses are often accompanied by management departures, and it would be unwise for courts to penalize directors for these decisions. d. Scienter Alleged from Insider Stock Sales Plaintiff alleges that stock sales by Defendants Zsebo and Laba during the specified class period creates a strong inference of scienter. Courts have repeatedly held that the mere existence of stock sales does not raise a strong inference of fraudulent intent. Wenger v. Lumisys, Inc., F. Supp. d, (N.D. Cal. March, ). Plaintiffs have the burden at the pleading stage of explaining why the stock sales were unusual or suspicious. See In re Health Mgmt. Sys. Inc. Sec. Litig., WL, * (S.D.N.Y. June, ). This requires a showing that the trading was in amounts dramatically out of time with prior trading practices, at times calculated to maximize personal benefit from undisclosed inside information. Alfus v. Pyramid Technology Corp., F. Supp., 0 & n. cv AJB (DHB)

23 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 (N.D. Cal. April, ). Where a corporate insider sells only a small fraction of his or her shares in the corporation, the inference of scienter is weakened. Acito, F.d at (finding sale of % of holdings insufficient). The Court finds that both Defendants Zsebo and Laba sold over 0% of their shares during the Class Period. However, despite Plaintiff providing the Court with Defendants Zsebo and Laba s trading history during the Class Period, the Court is unable to analyze whether or not Defendants stock sales during the Class Period were an unusual departure from past trading practices without Defendants previous stock sale history. Without more the Court is unable to find a strong inference of scienter. e. Scienter Alleged through Corporate Scienter In evaluating allegations of corporate scienter, the Ninth Circuit has been wary of complaints that allege facts critical to a business s core operations or an important transaction generally are so apparent that their knowledge may be attributed to the company and its key officers. In re Read-Rite Corp. Sec. Litig., F.d at. However, the Ninth Circuit has recently recognized two exceptions to the general rule and held that bare allegations of falsely reported information [could be] probative under certain narrow conditions. Zucco Partners LLC v. Digimore Corp., F.d, 000 (th Cir. 00.) To satisfy this exception, plaintiffs might include in their complaint specific details about the defendants access to and review of information within the company. South Ferry LP, No., F.d at. See also In re Daou Sys. Inc., F.d at 0 ( Specific admissions from top executives that they are involved in every detail of the company and that they monitored portions of the company s database are factors in favor of inferring scienter in light of improper accounting reports ); see also Nursing Home Pension Fund, Local, 0 F.d at (plaintiffs pled facts giving a strong inference of scienter because the CEO of the defendant company was quoted as saying: All of our information is on one database. We know exactly how much we have sold in the last hour around the world ). The second exception permits an inference of scienter to arise where the information that has allegedly been misrepresented is readily apparent to the defendant corporation s senior management. Zucco Partners LLC, F. d at 000. cv AJB (DHB)

24 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 Plaintiff alleges that corporate officials who were sufficiently knowledgeable about the company should have known that CUPID would not have a positive outcome. In addition, Plaintiff highlights that at least one authorized agent of the company authorized, requested, commanded, furnished information for, prepared, reviewed or approved the statements in which the misrepresentations were made before their utterance or issuance. (Doc. No. 0.) These allegations are conclusory and do not provide specific details about each Defendants access to information, what Defendants knew, nor how they knew it. In addition, Plaintiff s broad statements do not allege which authorized agent reviewed and ratified statements. These generalized conclusions do not add strength to Plaintiff s arguments for scienter. f. Scienter Alleged through Sarbanes Oxley Plaintiff alleges that Defendants Zsebo and Laba s certifications on the Company s Form 0-K filed with the SEC present an inference of scienter. Boilerplate language in a corporation s 0-K form, or required certifications under Sarbanes Oxley section 0(a), however, add nothing substantial to the scienter calculus. Zucco Partners LLC, at 00. Other circuits unanimously agree that allowing Sarbanes-Oxley certifications to create an inference of scienter in every case where there was an accounting error or auditing mistake made by a publicly traded company would eviscerate the pleading requirements for scienter set forth in the PSLRA. Id.; Garfield v. NDC Health Corp., F.d, (th Cir. 00); accord In re Ceridian Corp. Sec. Litig., F. d 0, (th Cir. 00). As a result, we reject Plaintiff s argument that Defendants Sarbanes-Oxley certifications create an inference of scienter. g. Holistic Review In Matrixx Initiatives v. Siracusano, S. Ct. 0, (0), the Supreme court emphasized that courts must review all allegations holistically when determining whether scienter has been sufficiently pled. (quoting Tellabs, U.S. at ). The Court finds that when read together, Plaintiff s arguments for scienter are not sufficient to meet the heightened standard of the PSLRA. cv AJB (DHB)

25 Case :-cv-0-ajb-dhb Document Filed 0/0/ Page of 0 0 At this time, the Court will not analyze the last factors of Plaintiff s section 0(b) claim. As Plaintiff has not pled his material misrepresentation and scienter claims to the heightened standard as set by the PSLRA, Defendants motion to dismiss is GRANTED. VII. CONCLUSION The Court concludes that Plaintiff s CAC does not reach the heightened standard set by the PSLRA securities fraud complaints. Plaintiff s repetitive and conclusory analysis in stating an action for misrepresentation and scienter, though voluminous, do not plead with the particularity required to survive a Federal Rule of Civil Procedure (b)() dismissal of a Rule 0(b) and 0(b)- claim. Plaintiff s Consolidated Amended Complaint is dismissed in its entirety. We dismiss without prejudice and with leave to amend within 0 days from the date of the order. For the reasons set forth above, Defendants Motion to Dismiss and request for judicial notice is GRANTED. IT IS SO ORDERED. Dated: October, 0 cv AJB (DHB)